While the Federal Reserve convenes for its first policy meeting of 2026, virtually every major Wall Street bank expects the central bank to eventually resume cutting interest rates. But one prominent voice is singing a decidedly different tune: Macquarie Group maintains its forecast that the Fed will actually raise rates by December 2026.

The Consensus View: Cuts Are Coming

Markets are broadly aligned on the near-term outlook. CME's FedWatch tool shows a 97.2% probability that the Fed will hold rates steady at the current 3.5% to 3.75% range when this week's meeting concludes on Wednesday. Beyond that, consensus expectations generally point toward one or two quarter-point cuts by year-end.

Goldman Sachs economist David Mericle has penciled in a 25 basis point cut in June, followed by a final cut in September that would bring the federal funds rate to a range of 3% to 3.25%. This view reflects the mainstream belief that inflation will continue moderating while economic growth softens, giving the Fed room to ease policy further.

Macquarie's Contrarian Thesis

David Doyle, head of economics at Macquarie Group, takes a starkly different view. In the bank's 2026 Global Economic and Market Outlook, Macquarie suggests that "central bank easing is near an end, with the Federal Reserve likely to be hiking interest rates again in late 2026."

"The labor market data probably matters more for the Fed than the inflation data. Our view is that the data will guide them toward not cutting."

— David Doyle, Head of Economics, Macquarie Group

Doyle's reasoning centers on labor market resilience. Despite the "low-hire, low-fire" equilibrium that has characterized recent months, he sees potential for improvement in employment conditions that would eliminate the need for additional Fed accommodation. If the labor market stabilizes or strengthens while inflation remains above the 2% target, the Fed could find itself boxed into raising rates rather than cutting them.

The Inflation Factor

Macquarie's outlook is informed by persistent inflation pressures that have proven more stubborn than many anticipated. The Fed's preferred inflation gauge came in at 2.8% for December—still meaningfully above the central bank's 2% target. Upward pressure from tariffs, which have added uncertainty to import prices, has further complicated the inflation picture.

If inflation remains elevated while the economy continues expanding at a healthy clip—GDP grew at a 4.4% annual rate in last year's third quarter—the Fed may face pressure to tighten rather than ease. This scenario becomes more likely if any fiscal stimulus measures further boost demand.

What Other Banks Are Saying

Macquarie's view remains an outlier, but it's not entirely alone in questioning the rate cut consensus:

  • JPMorgan: Has abandoned its 2026 rate cut forecast entirely, now projecting the Fed's next move will be a rate hike—but not until the third quarter of 2027.
  • Goldman Sachs: Expects two cuts totaling 50 basis points by September 2026, bringing rates to 3% to 3.25%.
  • Morgan Stanley: Anticipates a "tilt toward dovish" but expects the Fed to remain on hold for most of 2026.

The divergence in forecasts reflects genuine uncertainty about how the economy will evolve under current policy and the impact of potential fiscal changes, tariff policies, and global economic conditions.

The Powell Transition Factor

Adding complexity to the outlook is the upcoming transition at the Fed's helm. Chair Jerome Powell's term ends in May 2026, and the June FOMC meeting will be the first under new leadership. Among the top candidates to replace Powell are National Economic Council Director Kevin Hassett, Federal Reserve Governor Christopher Waller, former Fed Governor Kevin Warsh, and BlackRock's Rick Rieder.

The identity of Powell's successor could significantly influence the Fed's policy direction. Some candidates may be more inclined toward an accommodative stance, while others might prioritize inflation-fighting credibility—potentially making Macquarie's rate hike scenario more or less likely depending on who takes the reins.

Investment Implications

For investors, Macquarie's contrarian call raises important portfolio considerations:

  • Bond positioning: If Macquarie is right, long-duration bonds could face headwinds as rate hike expectations get priced in. Shorter-duration fixed income might offer better risk-adjusted returns.
  • Rate-sensitive sectors: Real estate, utilities, and other sectors that benefit from lower rates could underperform if the Fed pivots toward tightening.
  • Financial stocks: Banks and other financial institutions generally benefit from higher rates, which improve net interest margins.
  • Growth stocks: Higher rates typically pressure growth stock valuations, as future earnings are discounted at higher rates.

The Probability Assessment

While Macquarie's forecast represents a low-probability scenario in most market participants' models, it serves as a useful reminder that the future path of monetary policy is genuinely uncertain. The Fed has surprised markets before, and the combination of persistent inflation, a resilient labor market, and potential fiscal stimulus creates conditions where a return to tightening is at least conceivable.

For now, markets remain firmly in the camp expecting eventual rate cuts. But as Doyle notes, the data will ultimately drive the Fed's decisions. If that data surprises to the upside on inflation or employment, the consensus view could shift—and Macquarie's contrarian call could prove prescient.

What to Watch

Key indicators that could support or undermine Macquarie's thesis in the months ahead include:

  • Core PCE inflation: The Fed's preferred measure; sustained readings above 2.5% would support the hike thesis
  • Nonfarm payrolls: A return to stronger job creation could signal labor market reacceleration
  • Wage growth: Persistent wage pressures would keep inflation concerns elevated
  • Tariff implementation: The scope and timing of trade policy changes will directly impact import prices

With the Fed meeting concluding Wednesday and Chair Powell's press conference to follow, markets will be parsing every word for clues about the central bank's thinking. For those following Macquarie's analysis, the question isn't just what the Fed does this week—it's whether conditions are building for a monetary policy surprise that few are currently anticipating.